What happens to your vehicle in a bankruptcy?
In most areas of North Carolina, a vehicle is a necessity. You need something to drive to get to work, to the grocery store, to pick your kids up from school and activities and to conduct your life. If you're so deep in debt that you need a serious solution like bankruptcy, you may worry that you will lose your car or truck. Most likely, this is not true. But there are a couple of different factors including the type of bankruptcy you file, how much your car is worth and whether you are current on your payments. Let's look at these.
What If You're Behind on Car Payments?
If you are several months behind on your car payment and file a Chapter 13, you should be able to keep your car by catching up on payments over the term of your repayment plan, which is typically three to five years. For instance, if your payments are $300 per month and you are three months behind, you owe $900 plus (as an estimate) $300 in late fees and additional interest. If your payment plan is five years, $20 per month of your Trustee payment would go to satisfy that balance ($1200 / 5 years / 12 months). Also with Chapter 13, it's possible to get a break on your car note as part of your filing.
If you owe more on your loan than your vehicle is currently worth, your attorney may be able to get the court to reduce the amount of that debt down to fair market value. And you may also be able to get a more favorable interest rate, as well. If you're behind three months on car payments and file a Chapter 7, it's likely that your lender will demand that you relinquish the car. This may be upsetting, but with the debt relief offered by this type of bankruptcy, you should be able to afford a replacement vehicle.
What If You're Current on Car Payments?
If you are current on your car payment and file a Chapter 13, you should be able to keep your vehicle. Like in the above paragraph, even if you are current on your payments, your attorney should be able to seek a cramdown on both the amount of your loan and the interest rate if the debt owed exceeds fair market value and the interest rate is high.
If you are current on your vehicle payment and file a Chapter 7, you should be able to keep your car, but may need to reaffirm your debt if your lender requests it. Otherwise, if you keep paying your payment each month, everything should be fine. Another option with a Chapter 7 is called redemption, but it requires cash to do it. You can get a type of cramdown that will reduce the debt down to the fair market value of the vehicle, but then this amount must be paid in a lump sum rather than it reducing your loan amount. If you can get an advance from work or a low (or no) interest loan from someone to do this, it can be very advantageous.
What If You Own Your Vehicle Free and Clear?
If you own your car free and clear and file a Chapter 7, your can exempt up to $3,500 in fair market value. If your car or truck is worth more than that, you may be able to use some or all of your remaining wildcard exemption of $5,000 to protect your vehicle. If your auto is worth more than can be protected, the Trustee may ask that it be sold to satisfy your debts, but your attorney can fight this.
The idea of doing without a car may frighten you, but this should not be the guiding factor in which type of bankruptcy you choose. Instead, it should be based on the type of debt you have, whether they are secured or unsecured, your delinquency status and your income. A reputable North Carolina bankruptcy attorney can advise you what's best for your unique circumstances. Contact the law offices of John T Orcutt now for a free consultation on getting out of debt now.